There are signs of a recovery in US inflation:
The cost of living excluding food and fuel rose 0.2 percent in March for a third month, reflecting broad-based gains in rents, medical care, clothing and used vehicles, a Labor Department report showed Friday in Washington. The University of Michigan said its preliminary consumer sentiment index for April climbed to the second-highest level in more than eight years.
…
On a year-over-year basis, consumer prices excluding food and fuel climbed 1.8 percent in March, the biggest 12-month advance since October. Over the past three months, so-called core costs were up at a 2.3 percent annualized rate, the most since June, compared with a 1.6 percent increase in February.
I certainly hope that the costly mission-creep at US universities becomes a political issue:
Most Americans believe people who want to go to college can get in somewhere—they just don’t think they’d be able to afford it, according to a new Gallup-Lumina Foundation poll.
While 61 percent of adults believe education beyond high school is available to anyone who needs it, only 21 percent agree that it’s affordable, according to the poll results, released on Thursday. Some racial groups were much more optimistic than others. Fifty-one percent of Hispanic adults said higher education is still affordable, Gallup found. Just 19 percent of black adults and 17 percent of white adults agreed.
…
Tuition at public colleges has risen more than 250 percent over the last 30 years, the two organizations noted. At the same time, financial aid hasn’t kept up. Students have been leaving school with record amounts of debt: In a separate study, Gallup and Purdue University found more than a third of students who graduated college from 2000 to 2014 were saddled with more than $25,000 in loans. Even if Americans believe anyone, in theory, could find their way to a college classroom, they’re not optimistic anyone could pay to stay there.
Assiduous Readers with good memories will remember that S&P warned about financial repression, as discussed on August 31, 2012; that the banks had to jump through hoops to help clients meet the rules, as discussed on September 11, 2012; and that there have been rumblings about a similar effect in Canada, as discussed on October 15, 2013. Now the problem of financial repression is receiving broader attention:
Moreover, Gluskin Sheff + Associates chief economist David Rosenberg pointed out in a note to clients that 80 per cent of the new Treasuries supply over the past year have been bought by foreign central banks, pension funds, insurers, banks, and insurance companies.
These entities, in Mr. Rosenberg’s words, are ones “that need Treasuries, not want them.”
No less an authority than Ben Bernanke, Fed chairman-turned-blogger-turned-hedge fund adviser, concurred that price-insensitive buyers are playing a large role in the market.
“New regulations require banks to hold ample liquidity and securities dealers to post more collateral in derivatives transactions,” he wrote in a recent blog post. “Insurance companies and pension funds also face rules that effectively require them to hold significant amounts of safe, longer-term bonds. This mandated demand seems likely to put downward pressure on longer-term yields for the foreseeable future.”
Bernanke’s blog post is titled Why are interest rates so low, part 4: Term premiums .
What’s a Grecian Urn? Doesn’t matter, it will all be confiscated anyway:
Running out of options to keep his country afloat, Greek Prime Minister Alexis Tsipras ordered local governments to move their funds to the central bank.
With negotiations over bailout aid deadlocked, Tsipras needs the cash for salaries, pensions and a repayment to the International Monetary Fund. Greek bonds fell after the move, pushing three-year yields to the highest since the nation’s debt restructuring in 2012. The order was questioned by local officials and slammed by the leading opposition party.
The decree to confiscate reserves now held in commercial banks and transfer them to the central bank could raise about 2 billion euros ($2.15 billion), according to two people familiar with the decision. It shows how time is running out for Tsipras, a point made by European officials who addressed the matter at IMF meetings in Washington in recent days.
Geez, if I was Greek, everything I owned would be kept in a safe deposit box out of the country.
DBRS takes the view that Hydro One bonds are as good as they always were:
DBRS Limited (DBRS) today notes that the government of the Province of Ontario (the Province, rated AA (low) with a Stable Trend by DBRS) has announced its intention to broaden the ownership of Hydro One Inc. (Hydro One or the Company, rated A (high) with a Stable Trend, wholly-owned by the Province) through an initial public offering (IPO) that could see the Province gradually reduce its ownership in the Company to 40% over the next four to five years. DBRS has reviewed the details of the Province’s announcement together with the final recommendation of the Premier’s Advisory Council on Government Assets (the Council) released on April 16, 2015, and has concluded that the proposal as it currently stands has no material impact on Hydro One’s credit profile.
DBRS rates Hydro One on a stand-alone basis, independent of its ownership structure; however, the ratings are constrained by the rating of the Province, which acts as a ceiling. The Province provides indirect support to Hydro One with a flexible dividend policy which, given the Company’s heavy capital expenditure (capex) program, allows Hydro One to maintain its leverage below the 60% set by the Ontario Energy Board. At the same time, Hydro One’s current ownership structure limits its ability to access the equity markets directly and the Company’s additional funding needs are financed largely through a combination of operating cash flow and debt. Significant external funding is required to finance the Company’s capex program (nearly $5 billion over the next three years) to replace Hydro One’s aging electricity infrastructure. Maintaining adequate access to the public debt markets is therefore critical for the Company. DBRS notes that the proposed partial divestiture of ownership by the Province could provide the Company wider access to capital through the equity markets.
S&P begs to differ:
- •We are downgrading our long-term corporate credit rating on Hydro One Inc. to ‘A’ from ‘A+’. We are also revising our view on the likelihood of extraordinary government support from the Province of Ontario to “moderately high” from “high.”
- •In addition, we are affirming our ‘A-1’ short-term corporate credit and ‘A-1 (mid)’ commercial paper ratings on Hydro One.
- •The stable outlook reflects our view of the relatively stable regulatory regime that we believe contributes to predictable cash flows.
Standard & Poor’s Ratings Services today said it lowered its long-term corporate credit rating on Hydro One Inc. to ‘A’ from ‘A+’. The outlook is stable.
Standard & Poor’s also revised its view of the likelihood of extraordinary support to “moderately high” from “high.”
“These rating actions and revisions are in response to the Government of Ontario’s announcement that it has a clear intention to immediately conduct an initial public offering of 15% of Hydro One and ultimately to sell up to 60%,” said Standard & Poor’s credit analyst Stephen Goltz.
…
We believe that the strength and durability of the link between the government and the company have weakened with the government’s announcement of its intention to privatize the majority of Hydro One. Accordingly, based on our criteria, we have revised our assessment of the link between the government and the company to “strong” from “very strong” (see “Rating Government-Related Entities: Methodology And Assumptions,” published March 25, 2015, on RatingsDirect). We continue to assess the role of the company to the government as “important.”In addition, we have not changed our assessment of the ‘a’ SACP on the company. The sale of Hydro One Brampton Inc. is not material to this assessment.
Regulators will be thrilled to learn that the war on banks is having an effect:
HSBC Holdings Plc will consider whether to move its headquarters from London once the regulatory environment becomes clearer, Chairman Douglas Flint said.
“We are beginning to see the final shape of regulation, the final shape of structural reform and as soon as that mist lifts sufficiently, we will once again start to look at where the best place for HSBC is,” Flint, 59, told a shareholder meeting in Hong Kong on Monday after one investor urged him to quit London.
HSBC, Europe’s largest bank, has faced calls to move its domicile away from the British capital after the government increased the levy on bank’s balance sheets for an eighth time this year. HSBC is hit the hardest by the tax and paid 750 million pounds ($1.1 billion) last year. Both the Labour and Conservative parties have pledged a more onerous tax regime for banks in their manifestos for the May 7 U.K. election.
…
Standard Chartered Plc, another British bank that like HSBC makes most of its profit in Asia, is also being urged by Aberdeen Asset Management Plc, its second-largest shareholder, to relocate to Asia because of the cost of being in London.
And now for something completely different:
Signs that prices are starting to firm prompted investors to pile into the iShares TIPS ETF, which is comprised of Treasury Inflation-Protected Securities. Shares of the fund looked like a better bet last week, after the Labor Department reported that March consumer prices excluding food and energy rose by more than expected from last year, and oil prices held above $50 a barrel for 10 days straight.
…
The fund attracted $634 million last week, its biggest weekly inflow since it was created in late 2003.
…
A market gauge known as the break-even rate, used as a proxy for inflation expectations over the life of five-year TIPS, last week touched the highest level October. The difference between yield on the security and fixed-rate Treasuries of similar maturity reach 1.7266 percent on April 17.
What a difference a day makes! It was a fine day for the Canadian preferred share market, with PerpetualDiscounts gaining 9bp, FixedResets winning 40bp and DeemedRetractibles up 13bp. The Performance Highlights table is suitably lengthy, with a good crop of losers to remind us that volatility remains at extreme levels. Volume was average.
For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.
Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread
Here’s TRP:
Click for Big
TRP.PR.E, which resets 2019-10-30 at +235, is bid at 22.35 to be $0.60 rich, while TRP.PR.B, resetting 2015-6-30 at +128, is $0.82 cheap at its bid price of 13.79.
Click for Big
Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).
Most expensive is MFC.PR.I, resetting at +286 on 2017-9-19, bid at 25.04 to be $0.48 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 21.55 to be $0.29 cheap.
Click for Big
This fit is actually quite good.
The cheapest issue relative to its peers is BAM.PF.A, resetting at +290bp on 2016-9-30, bid at 22.95 to be $0.41 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 23.45 and appears to be $0.45 rich.
Click for Big
This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 15.47, looks $0.91 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 20.98 and is $0.36 rich.
Click for Big
Investment-grade pairs now predict an average over the next five years of about 0.30%. The DC.PR.B / DC.PR.D pair is still off the charts and now predicts an average bill rate over the next 4 3/4 years of -1.57%.
Click for Big
Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.5688 % | 2,183.1 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.5688 % | 3,817.1 |
| Floater | 3.32 % | 3.50 % | 57,801 | 18.54 | 4 | 0.5688 % | 2,320.8 |
| OpRet | 4.43 % | -1.74 % | 41,098 | 0.12 | 2 | -0.0393 % | 2,762.1 |
| SplitShare | 4.57 % | 4.59 % | 64,364 | 3.41 | 3 | 0.0267 % | 3,225.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0393 % | 2,525.6 |
| Perpetual-Premium | 5.33 % | 1.06 % | 65,072 | 0.09 | 25 | 0.0920 % | 2,515.7 |
| Perpetual-Discount | 5.13 % | 5.10 % | 139,016 | 15.04 | 9 | 0.4033 % | 2,783.1 |
| FixedReset | 4.62 % | 3.95 % | 276,510 | 16.21 | 85 | 0.1282 % | 2,310.6 |
| Deemed-Retractible | 4.91 % | 3.42 % | 108,908 | 0.68 | 36 | 0.1336 % | 2,650.6 |
| FloatingReset | 2.58 % | 2.93 % | 76,743 | 6.23 | 8 | 0.1981 % | 2,346.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TD.PF.A | FixedReset | -2.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 22.40 Evaluated at bid price : 23.17 Bid-YTW : 3.50 % |
| BMO.PR.W | FixedReset | -1.84 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 22.57 Evaluated at bid price : 23.51 Bid-YTW : 3.42 % |
| TRP.PR.E | FixedReset | -1.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 21.90 Evaluated at bid price : 22.35 Bid-YTW : 3.84 % |
| IAG.PR.G | FixedReset | -1.44 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.90 Bid-YTW : 4.47 % |
| TRP.PR.D | FixedReset | -1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 21.69 Evaluated at bid price : 22.01 Bid-YTW : 3.85 % |
| BMO.PR.T | FixedReset | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 22.85 Evaluated at bid price : 24.05 Bid-YTW : 3.35 % |
| MFC.PR.K | FixedReset | -1.01 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.55 Bid-YTW : 5.25 % |
| TD.PF.C | FixedReset | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 22.31 Evaluated at bid price : 23.03 Bid-YTW : 3.50 % |
| BNS.PR.Y | FixedReset | 1.07 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.75 Bid-YTW : 4.08 % |
| BAM.PF.E | FixedReset | 1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 21.35 Evaluated at bid price : 21.35 Bid-YTW : 4.33 % |
| SLF.PR.B | Deemed-Retractible | 1.18 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.90 Bid-YTW : 4.91 % |
| SLF.PR.I | FixedReset | 1.25 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.33 Bid-YTW : 4.10 % |
| ENB.PR.P | FixedReset | 1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 19.91 Evaluated at bid price : 19.91 Bid-YTW : 4.46 % |
| BAM.PR.M | Perpetual-Discount | 1.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 22.46 Evaluated at bid price : 22.75 Bid-YTW : 5.25 % |
| PWF.PR.P | FixedReset | 1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 17.39 Evaluated at bid price : 17.39 Bid-YTW : 3.69 % |
| TD.PF.B | FixedReset | 1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 22.42 Evaluated at bid price : 23.18 Bid-YTW : 3.49 % |
| BNS.PR.Z | FixedReset | 1.58 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.86 Bid-YTW : 4.57 % |
| TRP.PR.C | FixedReset | 1.59 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 16.00 Evaluated at bid price : 16.00 Bid-YTW : 3.88 % |
| BMO.PR.Q | FixedReset | 1.60 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.25 Bid-YTW : 4.42 % |
| ENB.PR.D | FixedReset | 1.69 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 18.66 Evaluated at bid price : 18.66 Bid-YTW : 4.57 % |
| TRP.PR.A | FixedReset | 1.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 19.42 Evaluated at bid price : 19.42 Bid-YTW : 3.76 % |
| HSE.PR.C | FixedReset | 1.75 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 22.75 Evaluated at bid price : 23.90 Bid-YTW : 4.27 % |
| MFC.PR.F | FixedReset | 2.10 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.01 Bid-YTW : 7.22 % |
| IFC.PR.A | FixedReset | 2.14 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.57 Bid-YTW : 6.13 % |
| GWO.PR.N | FixedReset | 2.72 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.35 Bid-YTW : 6.61 % |
| ENB.PR.F | FixedReset | 3.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 19.48 Evaluated at bid price : 19.48 Bid-YTW : 4.54 % |
| SLF.PR.H | FixedReset | 4.87 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.45 Bid-YTW : 5.68 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PR.R | Deemed-Retractible | 116,550 | Nesbitt bought 39,800 from TD at 25.49 and crossed 75,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-04-30 Maturity Price : 25.25 Evaluated at bid price : 25.49 Bid-YTW : 4.45 % |
| NA.PR.W | FixedReset | 82,750 | Nesbitt crossed 15,000 at 23.90 and bought blocks of 15,000 shares, 15,000 and 10,000 from anonymous at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 22.73 Evaluated at bid price : 23.88 Bid-YTW : 3.36 % |
| CM.PR.Q | FixedReset | 79,409 | RBC crossed 40,000 at 24.88. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 23.05 Evaluated at bid price : 24.72 Bid-YTW : 3.60 % |
| RY.PR.M | FixedReset | 61,537 | RBC crossed 20,000 at 24.62. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 22.91 Evaluated at bid price : 24.41 Bid-YTW : 3.52 % |
| PWF.PR.T | FixedReset | 54,500 | TD crossed 48,600 at 24.40. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 22.94 Evaluated at bid price : 24.14 Bid-YTW : 3.46 % |
| CM.PR.P | FixedReset | 41,380 | RBC crossed 10,000 at 23.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-20 Maturity Price : 22.68 Evaluated at bid price : 23.75 Bid-YTW : 3.35 % |
| There were 35 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| MFC.PR.F | FixedReset | Quote: 17.01 – 18.59 Spot Rate : 1.5800 Average : 0.9112 YTW SCENARIO |
| MFC.PR.L | FixedReset | Quote: 21.30 – 22.99 Spot Rate : 1.6900 Average : 1.2771 YTW SCENARIO |
| PWF.PR.T | FixedReset | Quote: 24.14 – 25.13 Spot Rate : 0.9900 Average : 0.6956 YTW SCENARIO |
| PWF.PR.A | Floater | Quote: 17.26 – 17.97 Spot Rate : 0.7100 Average : 0.5235 YTW SCENARIO |
| BNS.PR.C | FloatingReset | Quote: 24.06 – 24.50 Spot Rate : 0.4400 Average : 0.2972 YTW SCENARIO |
| RY.PR.L | FixedReset | Quote: 26.05 – 26.43 Spot Rate : 0.3800 Average : 0.2412 YTW SCENARIO |